Should DC Raise Its Sales Tax to Help End Homelessness?

As you may have read, Mayor Bowser has proposed a quarter of a percent increase in the District of Columbia’s sales tax to raise revenues for homeless services. The new rate would be 6%, as it was from mid-2009 until October 2013.

The bump-up would raise an estimated $22.2 million in the upcoming fiscal year and slightly more in each of the three out-years the budget must project. About $18.7 million would move the District toward the goal of ending homelessness.

One of those quick, easy Washington Post online articles asks whether Bowser should be increasing the sales tax — quick and easy because it consists mainly of imported tweets. But it poses a good question. And we’re bound to hear more answers than we already have.

Here’s how I see the issue at this point.

For the Sales Tax Increase

The best argument in favor of the increase is that the District needs more money to reduce homelessness — let alone to make it “brief, rare, and non-recurring,” as the new strategic plan intends.

The DC Fiscal Policy Institute gives us an itemized account of $12.7 million in spending on plan priorities that the sales tax increase would apparently cover.* The remainder of the $18.7 million would give about 6,000 families a yearlong reprieve from the impending cut-off of their Temporary Assistance for Needy Families benefits.

Many are homeless already. But the reprieve is still a fair, sensible preventive measure if ever there was one. It would be even more effective (and fairer) if the budget rolled back at least some portion of the earlier benefits cuts that have left the families with a pittance.

Against the Sales Tax Increase

DC Council Chairman Phil Mendelson was quick off the dime. “When revenues are growing by 3 percent,” he told reporters, “you don’t need to be raising taxes.” This, however, assumes that projected revenues, sans tax increases, will be enough to pay for all critical needs.

Tackling the large, complex homelessness problem is, of course, only one of them. Perhaps Councilmembers can carve out sufficient funding from other programs, but neither he nor anyone else knows that now. And it’s not what he’s saying.

What he also says, however, raises what’s probably the most significant objection to the sales tax increase — and to sales taxes generally. They’re regressive, i.e., take larger shares of income from lower-income people than from those who are wealthier.

The District’s sales tax isn’t as regressive as some. I recall my shock when I moved from Berkeley, California to St. Louis and discovered that I had to pay tax on food I bought at the grocery store and on over-the-counter medicines.

The proposed increase would nevertheless require anyone who shops in the District to pay somewhat more for items that are also basic necessities — toilet paper, soap, light bulbs, shoes, etc. Most shoppers who’d take the hit are District residents.

DCFPI’s Executive Director, Ed Lazere, puts the best face on this he can, telling a Washington Times reporter that the effect on families is likely to be modest — a point the Institute’s budget brief repeats.

But, he adds, “All things being equal in a city that is marked by increasing income inequality, it probably would have been reasonable to raise revenues by asking those with the highest incomes to pay a little bit more.”

Alternative Revenue Raisers

Now, I don’t have anything like the expertise to say how the District could raise at least as much revenue as the proposed sales tax increase in a more progressive way. But I can draw on concepts experts have floated.

You who follow this blog know I’m about to get on my hobby horse and cite services that are still exempt from the sales tax. All but six in the long list DCFPI compiled in 2010 still are. And the vast majority of them can hardly be viewed as basic necessities.

Our property taxes are also worth a look. We have some extraordinarily pricey homes here in the District that are taxed at the same relatively low rate as small, unrenovated homes in our as-yet ungentrified neighborhoods.

And the tax collected doesn’t capture their actual increasing value because residential property tax increases are capped. Owners who live in those homes most of the year also benefit from reduced assessments.

I understand the need to craft a property tax increase carefully so as to protect low-income owners who bought their homes many years ago, before housing prices soared. But I think it could be done.

What surely could be done is to repeal the recent property tax break for seniors with incomes far from low. This beneficiary would willingly forfeit it to help fellow residents with no homes whatever.

There are probably other — and perhaps better — alternatives. But whatever the DC Council may consider will raise outcries from some interested parties. That’s just how revenue policymaking works. As former Senator Russell Long quipped many years ago, “[D]on’t tax you, don’t tax me, tax that fellow behind the tree.”

That said, it may be wrong to frame this issue as an either-or choice. DCFPI cites several priorities that could require more revenues than the sales tax hike would raise. Two speak directly to homelessness — the rollback of the TANF benefits cuts and additional locally-funded housing vouchers.

More generally, I suspect that dedicated sales tax revenues will fall far short of the funds needed to end long-term homelessness in the District within five years — even if budgets continue to ensure $100 million a year for the Housing Production Trust Fund.

I note that the Mayor’s State of the District address pushes the target year forward to 2025. Doubt this is just a slip by her speechwriter.

* As DCFPI notes, the Mayor’s budget includes $40 million to construct some smaller shelters — a step toward replacing the DC General family shelter. The money would be borrowed, however, not drawn from sales tax revenues.

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2 Responses to Should DC Raise Its Sales Tax to Help End Homelessness?

The proposed sales tax increase should be vigorously opposed by all advocates for low-income residents. Sales and excise taxes are the most regressive component of DC’s tax burden. As the 2015 Who Pays? (ITEP) for DC shows, the general sales burden is 2.9% of family income for the lowest 20%, averaging $13,600 a year, with this percentage steadily dropping to 0.3% for the top 1%, averaging $2.84 million. The overall DC tax burdens are steadily regressive above an average $52,100 family income, with the wealthiest residents paying a lower rate than all but the poorest families.

Again we see our Mayor protecting the wealthiest residents by not supporting a higher tax rate on the top, rather preferring to make the poorest families pay more in taxes, with many already living below the federal poverty level (this year for one person it is $11,770, for two $15,930; http://aspe.hhs.gov/poverty/15poverty.cfm). In their recommendations to the Mayor this year, the Fair Budget Coalition supported the just alternative: higher tax rates for the wealthy by addressing the property and income tax structures. Let’s not retreat. As the FBC advocated in March 2014, at the very least raise the income tax rate to 9.5% for taxable income between $150,000 and $350,000 and to 10% for taxable income above $350,000. At these rates, $98 million more revenue would be generated this year (ITEP simulation, shown on homepage of http://www.dcctj.org/). Implementing this tax hike would be a step forward to reducing income inequality in DC, as well as a creating a more just tax structure that would be a sustainable source of essential revenue for our budget. Yes, making DC’s tax structure less regressive with a truly progressive goal in mind is about redistribution of wealth and income, a recognition of the harmful impacts of income inequality to everyone in the community.

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Hi! I'm Kathryn Baer. This blog is one way I use my skills and experience to support policies that will reduce the hardships poor people suffer and the causes of poverty. You can find out more about me here .